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Why You Need Umbrella Insurance

Most folks know all about securing adequate insurance coverage for their cars, homes, and other personal property. After all, the tangible nature of these items is a reminder that someday they could be lost, stolen, or damaged, leaving you scrambling for a replacement.

But what about insurance for the valuables you can't replace, put a price on, or purchase at the store? Things like peace of mind, quality of life, standard of living, and protection for your future? Enter the personal liability umbrella policy.

For a small premium (last year Geico offered a quote of just over $200 a year for a $1 million policy), umbrella policies supplement the insurance that you already have through your home and auto coverage, adding another layer of protection for you and your assets. Think that sounds like overkill? It could be. But then again, what if someone decides to sue you for an amount higher than your existing policy will cover? Then suddenly your whole way of life could be at risk.

It's a myth that umbrella policies are for the rich; these policies offer peace of mind for anyone who could be held liable for serious injury to another person -- whether that injury is caused by you, your pet, or your child. Say a guest falls and sustains an injury in your home, your dog attacks a neighbor, or one of your children's friends is seriously injured in your backyard pool. An umbrella policy could allow you to weather the threat with very little damage to your financial future.

Umbrella policies typically cover:

Liability judgments that exceed the liability coverage limits on your home and auto policies. (In other words, your primary policy would pay its maximum damages; the umbrella policy would kick in for any overages.)

Instances when you (or your child or pet) cause bodily injury, property damage, or personal injury (including such injuries as libel and slander).

Legal fees and defense costs.

Umbrella policies don't typically cover:

Punitive damages.

Intentional acts.

Liability claims related to a business you own (you'll need a business insurance policy for that).

Looking into itAs with all types of insurance policies, you'll want to familiarize yourself with its inclusions and exclusions to determine if an umbrella policy is the right kind of coverage for you. You'll also want to determine whether the cost of an umbrella policy is comparable to simply paying to raise the liability coverage on your primary auto and home policies. Compare coverage and cost, assess your risk, and factor in your risk tolerance to make an informed decision between upgrading your existing policies or adding umbrella insurance.

If you think umbrella insurance is the way to go, you'll want to start by gathering information from the insurance carrier that maintains your current auto and homeowner's policies. You'll likely get the best rate and the most seamless coverage, meaning that, in the event of disaster, you won't also have to contend with different insurance companies battling it out over which one must assume liability. But, for comparison purposes, you may want to call another carrier and see if the fees are in the same ballpark. An umbrella policy isn't foolproof protection, of course, but another layer between you and a financially devastating lawsuit is a very good thing.

This article was originally published Jan. 27, 2007. It has been updated.

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